Billerud Agrees to Acquire Packaging Paper Production at Two UPM Mills

Feb. 1, 2012 - Billerud Finland Oy said that it has signed an agreement with UPM-Kymmene (UPM) to acquire UPMís packaging paper business in Pietarsaari and Tervasaari for EUR 130 million (approx. SEK 1.2 billion)

"We see great potential in the acquired business as it will now be integrated in a business focused on packaging paper," said Per Lindberg, President and CEO of Billerud. "The acquisition will give us a strong platform to continue developing our offering within smarter packaging solutions.

The deal includes one paper machine in Pietarsaari (PM 1) and one paper machine in Tervasaari (PM 7), both in Finland. Both machines rank among the largest and most efficient of its kind in Europe and are assessed as well invested and well maintained, Billerud said.

The machines produce packaging paper (sack/kraft paper) used in a broad range of areas such as food, retail, construction and other industries. Annual production capacity is approximately 300,000 tonnes. The business has approximately 185 employees.

Other activities at the mill sites will remain owned and operated by UPM.

Jyrki Ovaska, President of UPM's Paper Business Group, said, "UPM considers continuing consolidation to be critical to the cost competitiveness of the whole industry. With this transaction UPM and Billerud will have an improved opportunity to develop businesses that are at the centre of each company's strategy.

Annual net synergies are estimated to approximately SEK 30 million with full financial impact from year-end 2013. Synergies are mainly obtained through increased production flexibility within the Billerud Group. One-off costs associated with the separation of the acquired business from UPM is estimated to approximately SEK 22 million during 2012.

The acquired business achieved sales of approximately EUR 220 million (SEK 2 billion) and EBITDA of approximately EUR 18 million (SEK 165 million) in 2011 (pro forma).

According to Billerud, long-term agreements have been signed between the parties where UPM, among other things, will deliver production inputs such as pulp, steam and electricity to Billerud. In the signed pulp agreement, Billerud will purchase pulp at market price.

Following the transaction, Billerud will purchase an annual pulp volume corresponding to approximately 85% of Billerudís current market pulp sales volume. As a result, the acquisition will significantly reduce Billerudís exposure to the pulp market and Billerud will therefore no longer report sales of market pulp separately.

The deal, which is scheduled to close in the second quarter of 0212, is subject to regulatory clearances.